Univ.of  in. 
5$ 

m*  * 


Library 

UmIVuKoI  I  I  Ul  iE.L.l'iU 


REPORT 


UPON  THE 


FINANCIAL  AND  BUSINESS  AFFAIRS 


OF  THE 

OREGON  IMPROVEMENT  COMPANY. 


TABLE  OF  CONTENTS. 


PAGES 

Description  of  Properties . 1  to  4 

Table  of  Earnings  by  Departments .  5  “  6 

Report  upon  these  Departments : 

Port  Townsend  Southern  R.  R .  7  “  8 

Seattle  and  Northern  R.  R  .  8  “  9 

Pacific  Coast  S.  S.  Co .  9  “  19 

Columbia  and  Puget  Sound  R.  R .  ....  19  “  21 

Oregon  Improvement  (Coal  Department) . 22  “  80 

Pacific  Coast  Railway. .  .  ...  30  “  31 

Valuations  upon  the  Properties .  31  “  33 

Capital  Account .  33  “  34 

Income  Account .  34 

Cash  Requirements .  34  “  35 

Business  Conditions .  .  .  .  .  35  “  37 

System  of  Management .  ...  37  “  38 

Probabilities . .  38  “  39 


Digitized  by  the  Internet  Archive 
in  2017  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


https://archive.org/details/reportuponfinancOOgree 


UNIVERSITY 


OF  1LLINOI 


Office  of 

THOMAS  L.  GREENE, 

Room  1008, 

26  Cortlandt  Street. 

New  York,  March  9,  1896. 

John  I.  Waterbury,  Esq., 

Chairman  Reorganization  Committee 

of  the  Oregon  Improvement  Co. 

Dear  Sir: 

According  to  your  instructions  I  left  New  York  City 
the  middle  of  January  and  proceeded  to  the  Pacific  Coast 
to  make  an  investigation  into  the  accounts  and  business 
affairs  of  the  Oregon  Improvement  Company,  with  par¬ 
ticular  reference  to  their  present  business  condition  and 
the  future  probabilities. 

The  Oregon  Improvement  Company  itself  owns  in  fee 
some  steamships  and  coal  lands.  The  principal  proper¬ 
ties,  however,  embraced  in  its  system  are  railroads  and 
steamship  lines;  the  entire  capital  stocks  of  these  latter 
properties,  except  enough  to  qualif}^  directors  for  these 
subsidiary  corporations,  are  owned  by  the  Oregon  Improve¬ 
ment  Company.  These  subsidiary  companies  have  sep¬ 
arate  charters  and  organizations,  while  the  Oregon 
Improvement  Company  has  no  legal  relation  with  them, 
except  as  the  owner  of  their  capital  stocks,  though  it 
acts  as  treasurer  for  them  all.  Thus  it  forms  a  sort  of 
clearing  house  for  all  the  corporations  embraced  within 
its  ownership.  Besides  the  Oregon  Improvement  Com¬ 
pany,  these  subsidiary  corporations  are  as  follows: 

Pacific  Coast  Steamship  Company. 

Pacific  Coast  Railway  Company. 

Seattle  and  Northern  Railway  Company. 

Port  Townsend  Southern  Railroad  Company. 

Columbia  and  Puget  Sound  Railroad  Company. 

The  properties  owned  by  these  corporations  are  as  below: 

The  Oregon  Improvement  Company  owns  in  fee  nine 
steamships,  now  being  operated  by  the  Pacific  Coast  Steam- 


! 1 03656 


Q 


ship  Company ;  3,210  acres  of  coal  lands  in  the  Franklin  Dis¬ 
trict  of  King  County,  Washington;  1,920  acres  of  coal 
lands  in  the  New  Castle  District  of  King  County,  Washing¬ 
ton,  with  mines,  mine  machinery,  stores  and  real  estate 
belonging  thereto;  2,240  acres  of  agricultural  land  in 
Columbia  County,  Washington;  2,280  acres  in  Whitman 
County,  Washington;  63  acres  in  Walla  Walla  County, 
Washington;  36  acres  in  Baker  County,  Oregon;  800 
acres  in  Union  County,  Oregon;  167  town  lots  in  the  Town¬ 
ship  of  Prescott,  Washington;  20  miles  of  flumes,  with 
telephone  line  and  wagon  road,  in  Dayton  County,  Wash¬ 
ington;  12  grain  warehouses  on  the  line  of  the  Pacific 
Coast  Railway  in  Southern  California;  coal  dock  property 
in  San  Francisco,  with  live  stock  and  vehicles,  buildings 
on  coal  docks  in  Oakland,  Portland  and  Astoria,  together 
with  the  shares  of  certain  coal  selling  associations  in  San 
Francisco  and  Sacramento.  The  Oregon  Improvement 
Company  has  on  hand  material,  and  supplies  necessary  for 
its  current  requirements  and  also  owns  stocks  of  coal  at 
various  points  in  Washington,  Oregon  and  California, 
together  with  coal  accounts  and  bills  receivable,  being 
money  due  for  coal  sold  at  wholesale  and  retail. 

The  Pacific  Coast  Steamship  Company  owns  twelve 
steamers  of  varying  degrees  of  value,  ocean  landings  and 
wharves  along  the  Pacific  Coast,  either  in  whole  or  in  part, 
material  and  supplies  in  San  Francisco  and  elsewhere,  to¬ 
gether  with  current  accounts  receivable,  as  well  as  certain 
equities  and  rights  to  the  use  of  steamship  wharves  in 
San  Francisco  and  elsewhere.  The  capital  stock  of  this 
Company  consists  of  20,000  shares  of  $100  each,  owned 
by  the  Oregon  Improvement  Company. 

The  Pacific  Coast  Railway  Company  is  the  owner  of 
a  narrow  gauge  railway  running  from  Port  Harford,  in 
San  Luis  Obispo  County,  in  southern  California,  to  Los 
Olivos  in  the  same  county,  being  seventy-seven  miles  of 
line  with  sidings  and  equipment,  together  with  wharves 
and  buildings  at  Port  Harford  and  current  materials  and 
supplies  on  hand.  The  Pacific  Coast  Railway  Company 


3 


has  issued  13,704  shares  of  stock  at  $100  each  and  1,370 
bonds  at  $1,000  each,  the  entire  issue  of  both  being  owned 
by  the  Oregon  Improvement  Company. 

The  Seattle  and  Northern  Railway  Company  owns 
thirty  six  miles  of  standard  gauge  line  with  sidings,  run¬ 
ning  from  Anacortes,  Skagit  County,  Washington,  east¬ 
ward,  crossing  the  line  of  the  Seattle,  Lake  Shore  and 
Eastern  Railway  Company,  the  latter  being  the  Canadian 
Pacific  connection  to  and  from  Puget  Sound.  The  Seattle 
and  Northern  owns  equipment  and  also  wharves  and 
buildings  at  Anacortes;  it  owns  the  stock  of  the  Anacortes 
Water  Company,  3,240  town  lots  in  Anacortes  and  1,390 
acres  adjacent  to  that  town.  The  Seattle  and  Northern 
Railway  Company  has  issued  50,000  shares  of  stock  at  $100 
each,  all  of  which  is  the  property  of  the  Oregon  Improve¬ 
ment  Company. 

The  Port  Townsend  Southern  Railroad  Company 
owns  two  lines,  one  running  south  from  Port  Townsend, 
Washington,  to  Quilicene,  and  one  line  running  from 
Olympia  to  Chehalis,  Washington,  a  total  of  forty-three 
miles  of  standard  gauge  line.  The  company  also  owns 
equipment,  wharves  and  buildings  in  Port  Townsend,  10 
acres  of  land  near  Port  Townsend,  the  Port  Townsend 
Hotel  and  64  town  lots  in  Quilicene,  Washington.  The 
Port  Townsend  Southern  has  issued  30,000  shares  of  stock 
at  $100  and  one  bond  for  $912,000,  all  of  which  is  the 
property  of  the  Oregon  Improvement  Company. 

The  Columbia  and  Puget  Sound  Railroad  Company 
owns  54  miles  of  narrow  gauge  main  line,  with  sidings, 
running  from  near  the  boundary  of  the  City  of  Seattle  to 
the  New  Castle  and  Franklin  coal  mines  of  the  Oregon 
Improvement  Company  in  King  County.  It  also  carries 
coal,  lumber  and  clay  for  other  mines  and  camps  situated 
on  the  road  as  well  as  general  merchandise  and  passengers; 
it  has  equipment  now  nearly  worn  out,  material  and  sup¬ 
plies  and  current  accounts  receivable.  The  company  owns 
2,072  acres  adjacent  to  the  City  of  Seattle  in  King  County, 
Washington,  and  605  lots  in  the  City  of  Seattle.  Subject 


4 


to  the  trackage  rights  of  the  Northern  Pacific  it  owns  the 
roadbed  used  by  both  railroads  ten  miles  from  Black  River 
Junction  to  the  city  boundary.  Within  the  city  limits  it 
owns  the  freight  houses  and  tracks  which  the  Northern 
Pacific  uses  for  its  freight  purposes  and  for  its  main  line 
under  an  agreement  dated  in  1893,  by  which  the  Northern 
Pacific  lias  the  privilege  of  purchase  of  one-half  interest 
in  fifteen  years  at  a  valuation  then  to  be  fixed  by  appraisal, 
the  Northern  Pacific  meanwhile  paying  no  rental. 

The  Columbia  and  Puget  Sound  Company  owns  two  of 
the  best  ocean  wharves  with  buildings  in  the  City  of 
Seattle  with  tracks  connecting  therewith,  together  with 
coal  bunkers  extending  out  into  the  Sound,  round  house, 
shops  and  other  terminal  property.  A  railroad  right  of 
way  along  the  water  front  was  granted  by  the  City  of 
Seattle  to  the  Columbia  and  Puget  Sound  and  the  Puget 
Sound  Shore  Railway  jointly,  the  latter  being  now  a 
branch  line  of  the  Northern  Pacific  connecting  with  the 
main  line  near  Tacoma,  and  over  which  all  the  Seattle 
traffic  of  the  Northern  Pacific  is  carried.  This  right  of 
way  common  to  both  roads  is  called  the  Ram’s  Horn,  and 
forms  a  valuable  line  along  the  water  front.  Owing  to  the 
nature  of  its  traffic,  the  Columbia  and  Puget  Sound  uses 
this  line  but  little  for  freight  and  not  at  all  for  passengers, 
thus  giving  to  the  Northern  Pacific  its  passenger  terminals 
in  the  City  of  Seattle  without  the  disturbance  of  conflict¬ 
ing  train  service  on  the  joint  track.  It  will  be  seen  from 
this  brief  description  that  the  relationships  between  the 
Northern  Pacific  and  Columbia  and  Puget  Sound  are  very 
close  and  difficult  of  separation,  though  by  force  of  circum¬ 
stances  the  Columbia  and  Puget  Sound  derives  no  direct 
revenue  from  the  different  terminals  described  above  as 
used  in  whole  or  in  part  by  the  Northern  Pacific  Railroad. 
A  few  years  ago  the  State  of  Washington  decided  to  claim 
State  ownership  for  all  tide-water  lands  on  Puget  Sound, 
and  to  sell  the  same  for  a  nominal  consideration  to  those 
parties  who  should  show  the  best  right  thereto.  Under 
its  ownership  of  the  terminal  property  already  referred  to 
and  also  from  ownership  of  certain  city  lots  and  the 


5 


riparian  rights  belonging  thereto,  the  Columbia  and  Puget 
Sound  has  been  adjudged  to  be  the  rightful  purchaser  of 
tide- water  lands  along  the  city  front  of  Seattle  amounting 
in  all  to  about  fifty-eight  acres,  subject  to  certain  small 
claims  not  yet  decided.  Under  local  complications  a  small 
part  of  these  lands  is  being  filled  in,  the  remainder  is 
covered  by  water  and  will  probably  remain  so  until  act¬ 
ually  needed  for  commercial  purposes.  In  the  cash  re¬ 
quirements  $110,000  is  included  for  full  payment  to  the 
State  for  these  lands  and  for  the  expense  of  filling  as 
agreed  upon.  These  tide-water  lands  are  at  the  moment 
unsalable,  but  no  doubt  are  of  future  value,  for  any  ex¬ 
tension  of  the  business  of  the  City  of  Seattle  will  require 
the  use  of  these  lands  for  commercial  purposes  and  for 
wharves. 

Below  are  given  tables  showing  the  gross  earnings,  op¬ 
erating  expenses  and  net  earnings  of  each  of  the  depart¬ 
ments  for  1895,  compared  with  the  results  for  1894. 


GROSS  EARN¬ 
INGS. 

1895. 

1894. 

Increase. 

Decrease. 

Pacific  Coast  Steam¬ 

ship  Company  . .  . 

$2,237,579  36 

$2,478,936  02 

$241,356  66 

Pacific  Coast  Rail¬ 

way  Company. . . . 

127,266  10 

118,147  24 

$9,119  46 

Columbia  and  Puget 

Sound  Railroad 

Company . 

263,053  79 

324,837  22 

61,783  43 

Seattle  and  North¬ 

ern  Railway  Com- 

nanv  . 

39,136  55 

40,260  98 

1,124  43 

Port  Townsend 

Southern  Rail- 

road,  Port  Town¬ 

send  Division  .... 

7,409  70 

7,825  03 

416  33 

Port  Townsend 

Southern  Rail- 

road,  Olympia  Di¬ 

vision  . 

7,616  43 

3,286  16 

4,330  27 

Steamers . 

68,795  23 

102,327  32 

33,532  09 

Land  and  Flume  De¬ 

partment . 

1,527  10 

4,521  37 

2,994  27 

Coal  Department  . . 

506,118  89 

677,261  26 

172,142  37 

Total  Earnings 

$3,258,503  75 

$3,758,402  60 

$13,449  73 

$513,349  58 

6 


OPERATING  EX¬ 
PENSES. 

1895. 

1894. 

Increase. 

Decrease. 

Pacific  Coast  Slearn- 

ship  Company  . . . 

$2,070,457  63 

$2,075,093  25 

$4,635  62 

Pacific  Coast  Rail- 

way  Company  . . . 

102,468  65 

93,376  01 

$9,092  64 

Columbia  and  Puget 

Sound  Railroad 

Company . 

130,776  69 

173,716  04 

42,939  35 

Seattle  and  North- 

ern  Railway  Com¬ 

pany  . 

27,559  96 

35,048  68 

7,488  82 

Port  Townsend 

Southern  Rail- 

road,  Port  Town¬ 

send  Division. . . . 

12,476  41 

11,882  20 

594  21 

Port  Townsend 

Southern  Rail¬ 

road,  Olympia  Di¬ 

vision  . . 

11,866  96 

10,117  48 

1,749  48 

Steamers  . 

65,132  30 

77,668  33 

12,536  03 

Land  and  Flume  De¬ 

partment  . 

3,469  15 

7,201  72 

3,732  57 

Coal  Department. . . 

394,265  85 

516,151  64 

121,885  79 

General  Expenses 

and  Taxes . 

50,113  01 

60,692  71 

10,579  70 

$2,868,586  51 

$3,060,948  06 

$11,436  33 

$203,797  88 

NET  EARNINGS. 

1895. 

1894. 

Increase. 

Decrease. 

Pacific  Coast  Steam¬ 

ship  Company.. . . 

$167,121  73 

$403,842  77 

$236,721  04 

Pacific  Coast  Rail¬ 

way  Company.  . . 

24,798  05 

24,771  23 

$26  82 

Columbia  and  Puget 

Sound  Railroad 

dnmpany  ...... 

132,277  10 

151,121  18 

18,844  08 

Seattle  and  North¬ 

ern  Railway  Com- 

pany . 

11,576  69 

5,212  30 

6,364  39 

Port  Townsend 

Southern  Rail- 

road,  Port  Town¬ 

send  Division. . . . 

5,066  71 

4,057  17 

1,009  64 

Port  Townsend 

Southern  Rail¬ 

road,  Olympia  Di¬ 

vision  . 

4,950  53 

6,831  32 

2,580  79 

StAamprK  .  .  . 

3,662  93 

24,658  99 

20,996  06 

Land  and  Flume  De¬ 

partment  . 

1,942  05 

2,680  35 

738  30 

Coal  Department. . . 

111,853  04 

162,109  62 

50,256  58 

General  Expenses 

and  Taxes . 

50,113  01 

60,692  71 

10,579  70 

Total  Net . 

$389,917  24 

$697,454  54 

$20,290  00 

$327,827  30 

Italic  figures  indicate  losses. 


In  order  that  the  above  figures  may  be  understood  and 
so  a  clearer  idea  of  the  general  situation  be  obtained,  I 
give  below  a  statement  of  the  affairs  and  earning  capacity 
for  each  department  of  the  Oregon  Improvement  Com¬ 
pany. 


The  Port  Townsend  Southern  Railroad. 

The  Port  Townsend  Southern  Railroad  consists  of  two 
divisions,  the  longer  running  south  from  Port  Townsend 
to  Quilicene,  Washington,  and  the  shorter  from  Olympia 
to  Chehalis,  Washington.  These  two  lines  were  purchased 
by  the  Oregon  Improvement  Company  some  ten  years 
ago,  upon  the  theory  that  it  would  be  wise  to  build  a  line 
of  railroad  from  Port  Townsend  around  Puget  Sound  to 
connect  with  some  transcontinental  line.  It  was  for  this 
purpose  that  grants  of  land  were  made  to  the  Company, 
and  subscriptions  offered  for  bonuses.  The  project  was  a 
wild  scheme  without  any  business  foundation,  but  it  was 
conceived  and  entered  into  at  a  time  when  everything  was 
booming  on  the  Pacific  Coast,  when  even  conservative 
men  believed  visionary  schemes  to  be  practicable. 
A  hotel  was  built  at  Port  To wn send  to  help  along 
the  sale  of  land  at  that  place.  These  two  lines  stand 
upon  the  books  of  the  Company  at  $1,353,504,  after  al¬ 
lowing  for  all  moneys  received  in  cash  or  from  sales  of 
land.  In  spite  of  great  care  the  Port  Townsend  Southern 
Railroad  has  never  paid  operating  expenses.  The  deficit 
in  1895  amounted  to  $9,003.  The  actual  loss  to  the  Com¬ 
pany  for  operating  these  lines  is,  however,  slightly  less 
than  these  figures,  since  a  part  of  the  general  expenses  of 
the  Seattle  office  amounting  in  1895  to  $3,200  was  charged 
to  that  Company. 

The  train  service  has  been  cut  down  as  much  as  pos¬ 
sible,  and  the  roadbed  is  kept  only  in  a  condition  above 
the  danger  point.  Some  of  the  right  of  way  is  not  owned, 
and  a  part  of  that  which  is  owned  is  but  24  and  50  feet 
wide.  There  is  about  10,000  feet  of  trestle  on  the  road, 


8 


which  in  the  course  of  a  few  years  will  require  some  work 
upon  it.  It  will  be  a  question  for  the  Company  to  decide 
whether  this  unprofitable  line  shall  continue  to  be  oper¬ 
ated  or  be  abandoned.  In  favor  of  continuing  operation 
is  the  possibility  that  when  active  prosperity  returns 
again,  some  use  may  be  found  for  these  lines  of  the  Port 
Townsend  Southern  with  a  further  possibility  of  its  sale 
at  that  time  to  some  other  Company.  For  the  immediate 
future  there  is  no  reason  to  expect  that  the  Port  Town¬ 
send  Southern  Railroad,  if  operated,  will  earn  its  running 
expenses. 


The  Seattle  and  Northern  Railroad. 

The  Seattle  and  Northern  Railroad  was  built  to  afford 
a  railroad  connection  with  the  town  of  Anacortes,  in 
Skagit  County,  Washington,  where  there  was  a  land  boom 
in  progress.  The  road  itself,  as  well  as  individuals,  was 
concerned  with  this  land  speculation  in  Anacortes.  To 
help  the  sale  of  the  land  owned  by  itself  and  its  friends, 
it  established  a  water  company  in  the  town,  which  is  now 
operated  at  a  loss.  It  built  wharves  and  buildings  for  the 
business  of  the  supposed  port.  The  principal  traffic  of 
the  road  is  the  carrying  of  lumber,  at  so  much  a  car, 
which  is  mostly  delivered  to  the  connecting  rail  line,  the 
Seattle,  Lake  Shore  and  Eastern,  The  road  is  not  expensive 
to  operate,  and  will  not  require  more  than  ordinary  re¬ 
pairs  for  the  present.  It  has  always  earned  a  small  amount 
of  net  income.  It  stands  upon  the  books  of  the  Com¬ 
pany  at  $1,230,390.  It  is  not  recommended  that  the  road 
be  abandoned,  because  it  yields  a  small  amount  of  profit, 
but  there  is  no  immediate  prospect  of  any  improvement; 
and  so  far  as  any  one  can  see,  there  is  no  probability  of 
its  becoming  of  any  great  value.  These  two  companies, 
The  Port  Townsend  Southern  and  the  Seattle  and 
Northern,  it  will  be  noticed,  comprise  three  short 
lines  of  railroad,  which  are  separated  from  the  rest 


9 


of  the  system  and  have  no  business  relation  with  the 
other  departments.  Together  they  cost  the  Company 
over  $2,500,000,  upon  which,  as  a  whole,  no  income  has 
been  received.  They  wTere  paid  for  by  the  issue  of  con¬ 
solidated  bonds  at  a  heavy  discount,  and  are  projects 
which  seem  to  have  been  entered  upon  wholly  as  matters 
of  speculation,  and  not  as  business  enterprises,  which 
might  be  joined  with  the  other  departments,  and  made 
to  form  an  income  earning  whole. 


The  Pacific  Coast  Steamship  Company. 

The  Pacific  Coast  Steamship  Company  was  started  some 
fifteen  or  more  years  ago  by  Messrs.  Goodall,  Perkins  & 
Company,  of  San  Francisco,  who  were  then,  as  they  are 
now,  the  leading  steamship  men  of  the  Pacific  Coast. 
When  plans  were  forming  for  controlling  the  transporta¬ 
tion  interests  of  the  Pacific  Northwest,  and  the  Northern 
Pacific,  the  Puget  Sound  Shore  Railroad,  the  Oregon 
Railway  and  Navigation  Company  and  the  Oregon  Im¬ 
provement  Company  were  organized,  there  was  friction 
between  the  steamers  of  the  Pacific  Coast  Steamship 
Company  and  those  of  the  Oregon  Railway  and  Navigation 
Company.  To  avoid  this,  the  Pacific  Coast  Steamship 
Company  was  purchased  from  Goodall,  Perkins  &  Com¬ 
pany,  and  at  the  same  time — about  1883 — a  contract  to 
manage  all  the  steamships  of  the  different  properties  was 
made  with  that  firm,  subject,  however,  to  an  active 
interference  on  the  part  of  the  owners.  In  1889  this 
contract  on  behalf  of  the  Pacific  Coast  Steamship  Com¬ 
pany  was  renewed  with  Goodall,  Perkins  &  Company, 
but  so  modified  as  to  give  control  entirely  to  them,  sub¬ 
ject  only  to  the  supervision  of  the  owners.  This  latter 
contract  was  renewed  February,  1894,  for  five  years. 
This  agreement  provides  that  Goodall,  Perkins  &  Com¬ 
pany  shall  bear  all  the  expenses  of  their  own  office,  re- 


10 


ceive  and  disburse  all  moneys,  and  manage  the  affairs  of 
the  Company  generally  to  the  best  of  their  ability,  and  as 
compensation  shall  receive  two  per  cent,  of  the  gross 
earnings.  The  cost  of  legal,  traveling  and  ticket  office 
expenses  and  their  other  disbursements,  except  those  be¬ 
longing  strictly  to  the  general  office,  shall  be  borne  by  the 
Company.  The  gross  earnings  of  the  Pacific  Coast  Steam¬ 
ship  Company  have  in  the  past  averaged  about  $2,500,000 
per  year,  yielding  to  Goodall,  Perkins  &  Company  about 
$50,000  annually.  The  net  earnings  of  the  Company  for 
the  few  years  previous  to  1895  were  about  $400,000 
annually;  but  for  1895  they  decreased  to  $167,000. 

The  steamers  owned  by  the  Pacific  Coast  Steamship 
Company  comprise  the  smaller  and  poorer  boats  in  the 
fleet.  The  best  ships  are  owned  by  the  Oregon  Improve¬ 
ment  Company  and  are  leased  to  the  Pacific  Coast  Steam¬ 
ship  Company  for  their  net  earnings.  The  Pacific  Coast 
Steamship  Company  covers  the  coast  trade  of  the  Pacific 
from  Alaska  to  Mexico,  and  with  the  exception  of  one 
steamer  belonging  to  the  Oregon  Railway  and  Navigation 
Company,  which  runs  alternately  with  one  steamer  of 
the  Pacific  Coast  Steamship  Company  between  Portland 
and  San  Francisco,  the  Company  has  no  rival  for  the  Pa¬ 
cific  coast  trade  possessing  vessels  of  equal  size  and  accom¬ 
modations. 

Below  is  a  table  showing  the  earnings,  gross  and  net,  of 
the  Company  by  routes  for  five  years: 


11 


1895. 

1894. 

1893. 

1892. 

1891. 

ALASKA. 

Earnings . 

$267,847 

265,992 

$291,991 

202,600 

$323,640 

236,127 

$386  575 
327,904 

$419,574 

292,526 

Net . 

$11,855 

$89,391 

$87,613 

$58,671 

$127,526 

PUGET  SOUND. 

$693,564 

631,233 

$826,370 

728,881 

$786,489 

646,419 

$775,648 

650,315 

$932,005 

747,656 

Net . 

$62,330 

$97,488 

$140,070 

$25,333 

$183,349 

OREGON  (Portland 
and  San  Francisco). 

$228,352 

226,336 

$265,737 

231,866 

$214,578 

233,629 

$219,122 

202,249 

$264,390 

211,479 

Net . 

$2,015 

$33,872 

$  IQ  ,05 1 

$16,873 

$52  911 

CALIFORNIA,  North, 

$105,465 

115,718 

$95,962 

88,756 

$112,561 

97,951 

$115,039 

103,333 

$124,347 

112,016 

Expenses  . 

Net . 

$10,253 

$7,206 

$14,610 

$11,706 

$12,331 

CALIFORNIA,  South. 
Gross . 

$830,678 

701,038 

$870,335 

679,839 

$980,854 

753,549 

$960,360 

746,432 

$903,651 

763,163 

Expenses . 

Net . 

$129,640 

$172,496 

$227,304 

$213,938 

$140,487 

MEXICAN. 

Gross . 

$109,639 

90,096 

$115,134 

95,853 

$110,569 

103,301 

$128,464 

95,300 

1 

Mexican  and  Mis¬ 
cellaneous  routes 
combined  in  1891. 

Expenses . 

MISCELLANEOUS. 
Gross  . 

$19,543 

$19,281 

$7,268 

$33,164 

$2,035 

50,045 

$13,407 

29,297 

$7,650 

27,101 

$113 

37,821 

$181,874 

191,065 

■  Expenses . 

Loss . 

$48,ooq 

$ 1 5 ,8 Q  i 

$i9>45i 

$37*934 

$9,19  T 

TOTAL. 

Gross  . 

Expenses . 

Net . 

$2,237,579 

2,070,458 

$2,478,936 

2,075,093 

$2,536,341 

2,098,078 

$2,585,105 

2,163,354 

$2,981,345 

2,318,906 

$167,122 

$403,843 

$438,263 

$421,751 

$506,934 

Italic  figures  indicate  losses. 


library 

UNIVERSITY  of  ILLINOIS 


12 


The  losses  on  “  Miscellaneous  ”  cover  principally  the 
idle  steamers. 

It  will  be  noticed  that  the  net  earnings  of  this  Company 
have  seriously  declined  for  the  year  1895.  They  will  make 
even  a  less  favorable  showing  for  1896.  At  the  date  of 
this  report  there  is  a  war  of  rates  between  Portland  and 
San  Francisco  inaugurated  by  the  Southern  Pacific  Com¬ 
pany,  who  demand  fifty  per  cent,  of  all  the  passenger 
travel  to' and  from  San  Francisco  and  Portland  and  Puget 
Sound  cities.  To  force  a  settlement  the  Southern  Pacific 
Company  is  now  running  special  trains  on  the  boat  days 
at  less  than  half  the  usual  fare;  and  because  of  the  crowds 
attracted  to  their  trains  on  those  days,  claim  to  be  losing 
no  more  money  than  before,  when  their  trains  ran  partly 
empty.  Because  of  these  low  rates,  however,  the  steam¬ 
ships  are  losing  money  every  trip.  The  war  of  rates 
affects  not  only  the  earnings  out  of  Portland,  but  also  out 
of  Seattle.  The  freight  earnings  of  the  Pacific  Coast 
Steamship  Company  are,  however,  very  seriously  affected 
for  another  reason.  Owing  to  the  business  depression 
there  are  a  large  number  of  sailing  vessels  and  steam 
schooners  which  were  formerly  employed  in  carrying 
lumber  at  high  rates  from  the  ports  of  Washington  and 
Oregon  southward.  At  that  time  the  profit  was  so  great 
that  these  coastwise  vessels  carried  nothing  but  lumber, 
hurrying  back  to  secure  further  loads.  At  present  the 
volume  of  the  lumber  traffic  is  reduced  somewhat, 
and  the  carrying  rates  much  more,  so  that  these 
steam  schooners  find  it  profitable  to  attempt  to  secure 
the  traffic  of  the  old  established  routes.  They  make  it 
a  point  to  call  for  and  secure  at  merely  nominal  rates 
all  the  merchandise,  grain  and  like  traffic  which 
they  can  secure  from  southern  ports  and  wharves 
to  San  Francisco,  and  general  supplies  from  San  Fran¬ 
cisco  to  all  places  northward,  wdiere  heretofore  the  Pacific 
Coast  Steamship  Company  have  had  matters  ail  their  own 
way.  In  like  manner,  the  revival  of  the  mining  excite- 


13 


menfc  in  Alaska,  which  is  attracting  passengers  and  mining 
supplies,  would  prove  a  profitable  business  for  the  Pacific 
Coast  Steamship  Company  were  it  not  for  the  fact  that 
here  again  the  old  established  traffic  is  being  actively  com¬ 
peted  for  by  small  steamers  and  schooners,  which  began 
by  offering  rates  just  enough  below  the  Pacific  Coast 
Steamship  Company’s  schedule  to  get  the  traffic.  The 
Pacific  Coast  Steamship  Company  have  been  obliged  to 
meet  this  competition  squarely  all  along  the  coast  from 
Mexico  northwards,  by  reducing  their  rates  to  about  the 
level  of  competing  smaller  vessels.  This,  of  course,  has 
had  the  effect  of  stimulating  shipments,  so  that  more  tons 
were  carried  in  1895  than  in  1894,  but  in  consequence  of 
the  volume  of  business  the  expenses  were  nearly  as  large 
as  the  year  before,  so  that  the  loss  in  the  net  earnings  was 
about  the  same  as  the  decrease  in  gross.  It  is  not  to  be 
expected  that  this  condition  of  things  will  find  an  imme¬ 
diate  remedy.  Business  is  depressed  upon  the  Pacific 
Coast,  and  opinions  differ  as  to  the  time  when  it  may  be 
expected  to  mend.  Until  that  time  comes,  however,  it  is 
reasonable  to  suppose  that  there  will  be  more  or  less  se¬ 
vere,  and  what  one  may  call  illegitimate,  competition 
with  steamers  of  the  Pacific  Coast  Company. 

Meanwhile  closer  attention  than  has  heretofore  been  pos¬ 
sible  should  be  given  to  the  details  of  the  business.  On  cer¬ 
tain  parts  of  the  Coast  the  competition  of  these  steam 
schooners  might  be  to  a  certain  extent  checked  by  a  practi¬ 
cal  control  of  wharves  which  at  many  of  the  minor  ports 
may  be  the  only  docks  and  at  which  both  lumber  schooners 
and  the  fine  boats  of  the  Pacific  Coast  Company  now 
stand  on  an  equal  footing. 

Another  matter  involving  the  question  of  the  economy 
of  operation  is  the  fact  that  owing  to  the  pressure  to  pay 
interest  upon  the  second  mortgage  bonds  there  has  never 
been  any  sum  set  aside  either  for  depreciation  or  for  extra¬ 
ordinary  repairs  or  for  such  improvements  to  vessels  as 
would  make  the  workings  of  the  ships  more  economical, 


14 


or  for  the  purchase  of  new  vessels  as  the  older  and  smaller 
ships  become  worn  out  or  practically  worthless  for  the 
purpose  of  the  Company. 

Of  all  the  various  kinds  of  corporation  property,  steam¬ 
ships  are  the  most  perishable,  and  liberal  sums  should 
have  been  deducted  from  the  income  account  and  set 
aside  in  actual  cash  if  it  was  intended  that  the  Pacific 
Coast  Steamship  Company  should  be  well  and  economi¬ 
cally  operated.  While  no  wholesale  destruction  of 
the  old  fashioned  boats  should  he  attempted,  a  large 
sum  of  money  should  be  provided  for  repairs  ab¬ 
solutely  needed  in  the  next  few  years,  and  a  fur¬ 
ther  sum  annually  set  aside  from  the  earnings  for 
depreciation  and  for  the  making  of  such  minor  improve¬ 
ments  as  will  reduce  the  running  cost  and  thus  add  to  the 
net  earnings  of  the  future. 

The  ships  of  the  Company  are  15  years  or  more  old,  and 
were  built  before  the  discovery  of  the  triple  expansion 
engines  and  other  marine  inventions  which  have  so 
greatly  modified  ship  architecture  on  the  Atlantic  Coast. 
It  is  not  contended  that  the  practice  of  Atlantic  Coast 
steamship  lines  should  be  applied  at  once  to  the  Pacific 
Coast,  because  general  trade  conditions  are  not  yet  in 
conformity  with  our  Eastern  methods;  but  that  the  evo¬ 
lution  of  business  on  the  Pacific  Coast  will  undoubtedly 
tend  more  and  more  toward  Eastern  conditions  is  a  truth 
which  the  reorganized  Company  must  take  into  account. 
Perhaps  it  would  be  well  to  give,  as  an  instance  of  what 
is  meant,  a  table  showing  the  actual  results  of  operating 
the  Queen ,  which  is  considered  the  best  ship  in  the  fleet, 
and  the  one  used  to  accommodate  the  Alaska  tourist  travel 
during  the  summer  months.  Below  is  the  statement  for 
this  steamship,  covering  thirteen  years  of  service: 


15 


Statement  of  Steamer  “Queen.” 


1883. 

1884. 

1885. 

1886. 

Gross  Earnings . 

.  .  .  $375,546 

$250,945 

$248,778 

$249,522 

Operating  Expenses . 

273,012 

217,335 

186,625 

200,61 1 

Net  Earnings . 

...  $102,534 

$33,610 

$62,153 

$48,911 

1887. 

1888. 

1889. 

1890. 

Gross  Earnings . . 

. .  .  $393,908 

$189,410 

$258,270 

$235,148 

Operating  Expenses . 

251,951 

188,600 

249,953 

207,847 

Net  Earnings . 

.  ..  $141,957 

$809 

$8,316 

$27,302 

1891. 

1892. 

1893. 

1894. 

Gross  Earnings . 

.  ..  $190,256 

$144,713 

$184,84  S 

$152,797 

Operating  Expenses . 

134,741 

182,290 

164,405 

Net  Earnings . 

$42,606 

$9,971 

$2,558 

$1 1,608  loss. 

1895. 

Gross  Earnings . 

$149,596 

Operating  Expenses . 

149,387 

Net  . . 

$208 

For  the  eight  years  beginning  with  1888  it  will  be 
noticed  that  the  average  annual  revenue  accruing  to  the 
Oregon  Improvement  Company  was  about  $10,000.  This 
ship  stands  on  the  books  of  the  Company  to-day  at  its 
original  cost  value  of  $493,000.  If  we  estimate  on  5  per 
cent,  upon  this  valuation,  it  will  he  seen  that  there  has 
been  an  average  annual  loss  of  nearly  $15,000,  to  say 
nothing  of  the  depreciation  which  should  have  been 
taken  from  the  ship’s  account  and  credited  to  its  book 
value  each  year.  This  vessel,  the  Queen,  the  Company 
has  contracted  to  put  into  dry  dock  next  fall  for  the 
renewal  of  her  boilers  and  machinery  at  an  expense  of 
$190,000.  The  reason  for  this  surprising  unprofitableness 
as  given  by  Messrs.  Goodall,  Perkins  &  Company  is  that 
the  steamer  was  built  some  fifteen  years  ago  for  speed,  and 
the  modern  inventions  being  then  unknown,  that  end  was 
sought  to  be  obtained  by  making  the  machinery  so  heavy 


16 


and  strong  that  the  ship  could  be  propelled  through  the 
water  by  main  force  as  it  were.  The  result  has  been  that 
for  fifteen  years  the  ship  has  been  a  very  difficult  and 
costly  one  to  operate.  After  the  Alaska  season  the  ship 
could  not  profitably  be  put  upon  any  of  the  other  routes. 
Messrs.  Goodall,  Perkins  &  Company  further  state  that 
they  have  time  and  again  called  the  attention  of  the  offi¬ 
cers  of  the  Company  to  this  state  of  things,  not  only  as 
regards  the  Queen ,  but  also  about  other  ships  of  the  fleet 
which  were  affected  similarly,  though  not  to  the  same  ex¬ 
tent,  but  that  the  replies  have  always  been  that  the  Com¬ 
pany  could  not  spare  the  money  to  make  any  such  changes 
as  were  suggested.  The  firm  also  state  that  after  receiv¬ 
ing  the  new  boilers  and  machinery  next  autumn  the 
Queen  will  be  available  for  extra  service  and  will  make 
a  better  showing.  It  is  also  to  be  remarked  that  the 
effect  of  the  Alaska  competition  already  has  been  that 
of  reducing  the  price  of  the  first  class  cabin  passage 
about  one-third,  which  of  course  has  affected  the  results 
of  the  last  year  or  more.  On  the  other  hand 
some  of  the  good  ships  on  the  Southern  California 
route  have  made  money.  The  Santa  Rosa  is  an  example. 
Her  yearly  net  earnings  have  averaged  from  $50,000  to 
$60,000.  This  vessel  is  about  350  feet  long  and  is  hand¬ 
somely  fitted  up;  she  stands  on  the  books  of  the  Company 
at  $600,000,  and  was  built  by  John  Roach  in  1883.  In 
from  three  to  five  years  this  vessel  will  require  new  en¬ 
gine  and  boilers  at  an  expense  of  about  $160,000.  Some 
of  the  smaller  and  older  wooden  boats  of  the  Company  are 
still  used  for  freight  carriage  or  for  extra  service,  but  they 
are  very  uneconomical,  showing  sometimes  a  loss  and 
sometimes  small  earnings.  In  the  cash  requirements 
money  is  provided  for  one  new  vessel  now  for  the  freight 
traffic  in  Southern  California. 

It  is  essential  in  any  calculations  for  the  future  that 
certain  sums  should  be  provided  yearly  from  the  earnings 
for  depreciations  of  these  steamships  on  account  of  age, 
and  also  for  such  extraordinary  repairs  and  renewals 


(particularly  of  the  boilers  and  engines)  as  may  be  re¬ 
quired  from  time  to  time.  It  is  a  very  difficult  matter 
to  estimate  theoretically  what  this  annual  provision 
should  be.  Steamers  differ  greatly  as  to  the  rapidity  with 
which  they  wear  out,  and  in  actual  steamship  service  the 
only  proper  way  .is  to  have  the  fleet  appraised  by  prac¬ 
tical  seamen,  say  once  in  three  years,  and  then  rigorously 
to  take  from  the  income  of  each  year  for  the  next 
three  years  one-third  of  the  depreciation  as  thus  shown. 
These  deductions  from  the  annual  income  should  be  in 
cash,  and  should  be  put  in  some  trust  company  and  car¬ 
ried  on  the  books  as  a  special  fund.  To  this  fund  should 
be  charged  these  extraordinary  repairs  as  they  arise,  and 
also  an  occasional  new  vessel  to  take  the  place  of  those 
actually  worn  out  or  that  have  become  unserviceable.  In 
order,  however,  for  the  purpose  of  the  reorganization  that 
the  income  of  the  Steamship  Company  for  1895  may  be 
approximately  stated,  including  this  depreciation,  after  a 
careful  investigation  the  sum  of  $150,000  has  been  de¬ 
termined  upon  as  the  proper  deduction  to  be  made  for  this 
purpose  from  the  net  earnings  for  1895,  stated  in  the 
Receiver’s  report.  This  deduction  roughly  covers  an 
estimated  expenditure  of  $100,000  per  year  for  boilers  and 
engines  and  $50,000  per  year  for  such  depreciation  as 
requires  an  occasional  new  vessel.  There  is  already  be¬ 
ginning  to  be  heard  on  the  Pacific  Coast  expressions  of 
opinion  that  the  Pacific  Coast  Steamship  Company  should 
enlarge  its  operations  somewhat;  thus,  for  example,  while 
the  Santa  Rosa  is  a  good  vessel  for  the  trade  between  San 
Francisco,  Santa  Barbara  and  Los  Angeles,  ships  running 
on  the  same  route  with  her,  such  as  the  Mexico ,  are  not 
such  as  to  commend  themselves  to  first-class  travel.  In  Los 
Angeles  I  was  told  that  it  was  probable  that  there  would 
shortly  be  a  demand  for  a  fast  line  of  express  steamers  be¬ 
tween  the  ports  of  that  city  and  San  Francisco.  A  promi¬ 
nent  railroad  man  told  me  that  the  local — city  to  city — travel 
between  San  Francisco  and  Los  Angeles  was  about  200 
passengers  per  day.  During  nine  months  of  the  year  the 
journey  over  the  Southern  Pacific  between  these  cities  is 


18 


hot,  dusty  and  very  disagreeable;  owing  to  mountain 
grades,  the  Southern  Pacific  trains  take  about  twenty 
hours  to  run  this  distance  of  482  miles;  one  train,  the 
Sunset  Limited,  by  fast  running,  making  the  trip  in  six¬ 
teen  hours.  The  distance  by  water  from  the  ports  of  Los 
Angeles  is  about  the  same  as  by  land;  steamships  making 
about  the  same  time  as  the  Southern  Pacific  trains  would 
require  a  speed  of,  say,  eighteen  knots  an  hour,  or  some¬ 
thing  like  that  of  the  Sandy  Hook  boats  in  New  York 
Bay.  Such  ships  would  be  expensive  to  build  and  expen¬ 
sive  to  operate.  This  railroad  man  thought  that  the 
Pacific  Coast  Steamship  Company  ought  to  consider  the 
question  of  putting  on  such  a  line  of  fast  steamships,  but 
I  do  not  think  that  as  yet  such  a  line  would  pay,  or  that 
it  would  be  advisable  now  seriously  to  consider  such  a 
question.  The  matter  is  mentioned  here  as  setting  forth 
the  suggestion  that  the  Oregon  Improvement  Company 
will  in  time  be  compelled  to  improve  its  service  with  the 
growth  of  business,  particularly  in  Southern  California. 
Such  a  line  of  fast  steamers  certainly  would  not  pay  unless 
the  Company  could  secure  a  portion  of  the  tourist  travel¬ 
ers  wTio  now  hold  their  tickets  from  the  East  to  and  from 
San  Francisco  by  way  of  Southern  California  via  the 
Southern  Pacific.  In  time  some  arrangement  to  this  end 
might  be  made  with  the  Southern  Pacific  Company.  At 
present  the  Atchison  system  is  forbidden  by  contract  to 
ticket  passengers  north  of  Mojave  by  any  other  route 
than  the  Southern  Pacific  lines. 

It  is  my  general  opinion  that  the  Pacific  Coast  Steam¬ 
ship  Company,  although  not  at  the  moment  profitable  to 
its  owners,  has  yet  a  good  future, -provided  its  affairs  are 
conducted  under  careful  supervision  and  with  some  ex¬ 
penditure  of  money,  and  assuming  also  that  in  time  busi¬ 
ness  on  the  Coast  will  again  become  active  and  prosperous. 

I  recommend,  therefore,  to  the  new  Company  that  they 
should  by  all  means  continue  running  the  steamships, 
even  though  a  considerable  sum  of  money  is  needed,  and 
so  stated  in  the  cash  requirements  for  repairs  and  im¬ 
provements,  in  some  cases  too  long  neglected.  These  ini- 


19 


provements,  as  stated  before,  should  have  been  provided 
against  by  regular  charges  against  the  annual  income.  It 
is  also  believed  that  the  Pacific  Coast  Steamship  Company 
should  claim  the  control  of  the  Coast  trade  from  Alaska 
to  Mexico,  and  should  take  steps  to  hold  it  against  all 
comers,  whether  the  trade  be  competed  for  by  steamships 
as  good  as  their  own,  or  by  steam  schooners  or  sailing 
vessels. 

It  will  be  noticed  by  the  statement  of  earnings  pub¬ 
lished  above,  that  while  there  has  been  a  falling  off  in 
the  gross  receipts  of  the  Pacific  Steamship  Company  in 
1895  as  compared  with  1894,  there  has  been  but  little  re¬ 
duction  in  running  expenses.  Upon  this  point  it  should 
be  recollected  that  the  expenses  of  steamships  cannot  be 
cut  down  when  business  falls  off,  nor  can  service  be  re¬ 
duced  as  easily  as  can  trains  upon  a  railroad  be  discontin¬ 
ued;  the  steamship  must  often  run  under  a  temporary 
loss  with  a  full  complement  of  officers  and  men.  More¬ 
over,  the  average  expenses  for  business  of  all  kinds  is 
high  upon  the  Pacific  Coast  for  reasons  which  will  be 
more  fully  discussed  in  a  later  portion  of  this  report.  It 
is  enough  now  to  state  that  each  class  of  labor  employed 
upon  or  about  steamships  on  the  Pacific  Coast  has  its 
own  trade  union,  and  these  trade  unions  are  stronger  and 
more  assertive  than  the  corresponding  associations  upon 
the  Atlantic  seaboard.  Not  only  are  the  wages  consider¬ 
ably  higher,  but  the  rules  of  these  unions  require  that 
only  a  certain  amount  of  work  shall  be  done  per  day  (as 
in  cases  of  caulkers),  or  that  a  certain  number,  more  than 
is  really  necessary,  shall  be  employed  to  man  a  ship,  as  in 
the  case  of  steamships’  engineers  and  firemen.  Time  and 
no  little  diplomacy  on  the  part  of  the  new  Company  will 
be  required  to  meet  this  difficulty. 

The  Columbia  and  Puget  Sound  Railroad. 

Although  the  Columbia  and  Puget  Sound  Railroad 
carries  coal,  lumber,  clay  and  general  merchandize  for 
other  parties  than  the  Oregon  Improvement  Company, 


20 


yet  it  is  as  a  transporter  of  coal  from  the  mines  of  the  latter 
that  its  chief  importance  in  the  present  connection  comes. 
The  freight  rates  on  coal  are  fixed  high  enough  to  yield  a 
fair  profit,  and  the  same  charges  are  made  on  the  coal  of 
the  Oregon  Improvement  Company  as  on  that  of  the 
Black  Diamond  Company  or  any  other  shipper  over  the 
road.  Adding  in  the  income  received  from  the  two  ocean 
wharves  in  Seattle  owned  by  the  Company,  the  Columbia 
and  Puget  Sound  has  been  able  to  earn  an  annual  net  return 
for  its  owners  varying  from  $125,000  to  $150,000  per  year; 
yet  manifestly  the  amount  of  these  annual  earnings  de¬ 
pends  to  an  important  extent  upon  the  quantity  of  the 
coal  mined  by  the  Oregon  Improvement  Company,  and 
the  market  for  it  winch  that  company  is  able  to  find. 
The  Company  is  doing  its  railroad  work  with  some  old 
locomotives  which  will  shortly  have  to  be  replaced.  Its 
coal  cars,  with  some  exceptions,  are  growing  old  rapidly 
also.  Additional  equipment  will  therefore  be  necessary 
in  the  immediate  future,  and  as  this  additional  equip¬ 
ment  can  as  wTell  be  purchased  for  a  standard  gauge 
line,  it  would  be  a  matter  of  economy  to  change  the  whole 
road  to  a  standard  guage  this  year  if  possible.  For  this 
purpose  a  sum  is  included  in  the  cash  requirements. 
Aside  from  the  fact  that  a  good  part  of  this  amount  will 
have  to  be  spent  in  equipment  in  any  case,  it  is  further 
true  that  if  the  road  were  made  of  the  same  gauge  as  that 
of  other  connecting  roads  in  Seattle,  it  would  be  possible 
to  extend  the  sales  of  Oregon  Improvement  coal,  since  the 
cost  of  transfer  and  the  breaking  of  the  coal,  arising  from 
transshipment,  deprive  the  Oregon  Improvement  Company 
of  certain  markets  along  connecting  roads  which  they 
might  otherwise  reach.  The  railroad  line  of  54  miles 
has  a  great  deal  of  trestle  wTork,  one  long  trestle  across  a 
marsh  being  one  mile  in  length.  Until  a  few  years  ago 
these  trestles  were  allowed  to  fall  into  decay,  but  during 
the  last  few  years  a  considerable  portion  of  such  work 
has  been  filled  with  earth,  while  other  parts  of  the  line 
have  received  proper  care,  so  that  the  railroad  of  the 
Columbia  and  Puget  Sound  Company  is  now  in  as  good 


21 


condition  as  the  character  of  the  traffic  requires.  This 
may  be  inferred  from  the  fact  that  the  expenditures  for 
maintenance  of  way  have  amounted  to  $900  per  mile  per 
year,  an  average  somewhat  larger  than  the  average  cost 
of  maintenance  upon  the  whole  system  of  either  the 
Chicago,  Burlington  and  Quincy,  or  the  Chicago,  Milwau¬ 
kee  and  St.  Paul. 

The  Company’s  wharf  at  Seattle,  it  is  thought,  could 
be  improved,  and  its  hold  upon  the  ocean  traffic  strength¬ 
ened  by  the  erection  of  a  bonded  warehouse  to  be  built  of 
brick.  This  warehouse  could  easily  be  made  self  sustaining 
by  storage  charges  and  could  also  be  planned  so  as  to  afford 
rooms  for  the  general  officers  in  Seattle,  who  now  rent 
offices  in  one  of  the  prominent  buildings  of  the  city  at  a 
cost  of  $2,640  per  year.  The  reorganized  Company  might 
cause  an  examination  to  be  made  into  the  legal  and  com¬ 
mercial  relations  between  the  Columbia  and  Puget  Sound 
and  the  Puget  Sound  Shore  railways  (already  referred  to), in 
order  to  see  whether  the  property  of  the  Oregon  Improve¬ 
ment  Company  is  receiving  all  the  benefit  to  which  it  is 
entitled.  Among  the  cash  requirements  is  a  sum  for  the 
extension  of  the  Columbia  and  Puget  Sound  to  a  junction 
with  the  Northern  Pacific  main  line.  Such  a  line  would 
shorten  the  distance  on  the  Northern  Pacific,  between 
Seattle  and  the  points  east,  some  twenty-five  miles,  but 
the  expense  need  not  be  incurred  until  the  Northern 
Pacific  are  either  willing  to  use  the  Columbia  and  Puget 
Sound  Railway  for  their  Seattle  connection  or  until  the 
advantage  of  the  extension  is  otherwise  clearly  apparent, 
such  for  example  as  the  opening  up  of  a  new  and  large 
market  for  coal. 

The  tide  lands  and  the  unused  terminals  of  the  Colum¬ 
bia  and  Puget  Sound  Railroad  in  the  City  of  Seattle,  al¬ 
though  at  present  of  only  an  estimated  value,  may  be  ex¬ 
pected  to  become  in  the  future  either  salable  at  good 
prices  or  may  be  made  to  produce  a  corresponding  in¬ 
come.  Of  the  city  lots  in  the  City  of  Seattle  and  the  acre 
land  near  by,  the  same  may  be  said  when  the  business 
activities  of  Puget  Sound  shall  revive. 


i 


qq 


The  Oregon  Improvement  Company. 

The  nine  steamships  owned  by  the  Oregon  Improve¬ 
ment  Company  have  already  been  discussed  when  treat¬ 
ing  of  the  affairs  of  the  Pacific  Coast  Steamship  Com¬ 
pany.  The  small  amount  of  agricultural  land  in  the 
States  of  Oregon  and  Washington  are  at  present  unsal¬ 
able,  but  will  no  doubt  be  of  some  value  in  the  future. 
The  coal  lands  and  mines  of  the  company  require,  how¬ 
ever,  fuller  treatment. 

The  Franklin  coal  field  consists  of  1,920  acres.  The 
coal  is  a  steam  coal  and  has  been  pronounced  by  good 
judges  to  be  the  best  steam  coal  found  in  the  State  of 
Washington.  The  coals  found  in  Washington  are  all  lig- 
nitic,  being  better  than  the  pure  lignite  such  as  is 
found  in  the  State  of  Dakota.  The  Black  Diamond  Coal 
Company,  whose  mines  are  situated  on  the  Columbia  and 
Puget  Sound  Railroad,  are  mining  from  the  same  field  of 
coal  as  the  Franklin.  The  vein  which  has  been 
worked  at  the  Franklin  mines  is  called  the  McKay,  and  is 
four  feet  thick,  with  a  top  vein  of  two  feet  six  inches.  A 
calculation  of  the  operation  of  that  part  of  the  field, 
which  has  been  worked,  gives  the  original  contents  as 
312,000,000  cubic  feet;  at  twenty-seveu  cubic  feet  to  a  ton 
of  coal,  and  estimating  that  40  per  cent,  of  the  contents 
may  be  won,  there  appears  to  be  an  available  quantity  of 

4.457.143  tons.  Since  the  coal  already  mined  or  spoiled 
may  be  estimated  at  1,200,000  tons,  there  remains  in  the 
ground  an  available  output  for  the  present  mines  of 

3.257.143  tons,  a  quantity  which,  at  150,000  tons  per  year, 
would  take  twenty  years  to  exhaust.  Since,  however, 
this  vein  in  the  Franklin  field  is  shaped  like  a  horseshoe, 
a  new  opening  has  recently  been  sunk  on  the  opposite  side 
of  the  hill  from  the  old  operations,  this  new  opening  sup¬ 
plying  the  coal  which  is  now  being  sent  to  market. 
Owing  to  a  fire  in  the  mine,  the  old  shafts  have  been  idle, 
but  by  pumping  and  other  work  it  is  hoped  that  the  supply 
of  coal  tributary  to  the  old  shafts  will  soon  become  avail¬ 
able  again.  Owing  to  the  difficulties  of  mining,  and  also, 


to  an  important  extent,  to  the  mistakes  made  a  dozen 
years  ago  by  those  who  first  began  mining  operations  in 
the  field,  the  Franklin  mines  have  so  far  proved  very  ex¬ 
pensive  to  operate,  the  cost  per  ton  on  the  cars  averaging 
$2.50.  The  expenditure  of  some  thousands  of  dollars 
would  enable  some  part  of  this  cost  to  be  reduced  by  as¬ 
sembling  the  different  parts  of  the  now  scattered  surface 
machinery,  so  it  is  expected  that  this  average  cost  per 
ton  can  in  time  be  reduced;  but  the  mine  will  always 
be  an  expensive  one.  The  coal  has  a  certain  market  as 
a  steam-producing  fuel,  and  is  sold  under  compulsion 
to  the  Pacific  Coast  Steamship  Company  at  a  fair  profit, 
but  its  sales  will  always  be  handicapped  by  the  cost  of 
production,  and  by  the  further  fact  that  eighty  miles 
away,  in  British  Columbia,  as  good  or  better  steam-pro¬ 
ducing  bituminous  coal  is  mined  and  sold  in  large  quan¬ 
tities  all  along  the  coast,  in  which  markets  the  40  cents  per 
ton  custom  duty  offers  no  obstacle.  For  these  reasons  no 
special  stress  is  laid  in  this  report  upon  the  Franklin  field 
so  far  as  regards  the  expected  increase  of  profits  of  the  re¬ 
organized  company  in  future  years;  nevertheless  it  may 
be  that  reasonable  quantities  of  this  coal  may  yet  be  sold 
to  steam  coal  consumers  at  a  profit,  thus  giving  transpor¬ 
tation  to  the  Columbia  and  Puget  Sound  Railroad. 

The  Newcastle  field,  in  the  same  county,  is  nearer 
Seattle,  being  separated  from  that  city  mainly  by  a  large 
inland  lake,  called  Lake  Washington.  This  field  comprises 
1,920  acres.  Four  veins  of  coal  are  mined  with  an  aggregate 
thickness  of  24  feet.  On  the  same  basis  as  before,  that  27 
cubic  feet  will  yield  one  ton  of  coal,  and  that  of  the  coal 
in  the  ground  40  per  cent,  can  be  won,  there  remains 
25,000,000  tons  of  minable  coal  yet  in  the  ground, 
enough  to  last  one  hundred  years.  The  old  mine 
having  been  destroyed  by  fire,  the  Company  has  just 
opened  another  shaft  running  into  the  same  part  of  the 
field.  This  mine  now  in  operation  has  about  1,000,000 
tons  of  workable  coal  in  sight,  which  it  is  estimated 
will  be  exhausted  in  about  five  years.  It  will  be  necessary 
before  this  particular  mine  is  exhausted  to  open  another 


24 


shaft  upon  the  main  field  several  miles  away,  and  $75,000 
is  provided  in  the  cash  requirements  for  this  purpose. 
The  cost  of  the  present  five-year  mine  was  charged  to 
operating  expenses,  although  to  equalize  matters  in  the 
theoretical  income  account,  to  be  given  later,  four  years’ 
proportion  of  this  cost  has  been  allowed  as  a  credit  to  the 
income  of  1895.  The  veins  of  the  Newcastle  coal  are  in¬ 
clined  at  an  angle  of  45  degrees,  and  the  pitch  on  the 
untouched  part  of  the  Newcastle  field  is  such  that  it 
would  be  cheaper,  according  to  the  mining  superintend¬ 
ent,  to  purchase  some  adjoining  land,  and  begin  sinking 
the  shaft  upon  that  land,  than  to  attempt  to  open  the 
mine  upon  the  property  already  owned  by  the  Company. 
For  these  reasons,  $35,000  has  been  put  in  the  cash  re¬ 
quirements  for  the  purchase  of  this  adjoining  coal  land. 
The  expense  of  opening  a  new  shaft  will  be  somewThat  re¬ 
duced  by  the  removal  to  it,  and  the  use  of  some  heavy 
hoisting  machinery,  which  at  a  cost  of  about  $75,000  was 
placed  about  ten  years  ago  at  the  mouth  of  one  of  the 
Franklin  shafts,  but  which  has  never  been  used. 

The  Newcastle  coal  is  lignitic,  but  is  well  adapted  for 
domestic  use;  it  makes  a  quick,  bright  fire,  somewhat 
like  cannel  coal,  but  burns  away  rapidly.  In  the  semi- 
tropical  climate  of  California  where,  in  many  households, 
it  is  the  custom  to  cook  meals  and  then  to  let  the  fire 
go  out,  it  has  been  the  favorite  coal  of  its  kind  for  many 
years.  In  the  City  of  Seattle  also  the  Company  has  a 
large  trade.  I  have  been  told  by  a  number  of  persons  in 
Seattle  that  they  prefer  it  for  domestic  use  to  any  other 
coal,  even  to  that  of  British  Columbia.  Last  year  the  old 
Newcastle  mine,  which  had  been  producing  about  150,000 
tons  a  year,  was  accidently  set  on  fire  and  totally  de¬ 
stroyed;  the  fire  was  of  course  an  accident,  but  the  de¬ 
struction  it  caused  was  owing  to  the  bad  methods  under 
which  the  mining  had  been  planned  and  had  been  carried 
on.  Indeed,  it  may  be  said  that  if  the  Company  had  at 
the  outset  employed  a  first-class  mining  engineer  with  a 
high  salary  it  would  have  saved  in  the  end  a  great  deal  of 
money.  These  mistakes,  it  is  expected,  will  be  avoided 


25 


in  the  engineering  of  the  new  Newcastle  mine,  which 
must  be  opened  within  a  few  years. 

The  principal  market  for  all  British  Columbia  and 
Washington  coals  outside  of  the  local  sales  is  San  Fran¬ 
cisco,  and  it  is  to  the  consumption  in  that  city  that  the 
Company  must  mainly  look  for  the  disposal  of  any  in¬ 
crease  in  the  output  of  Newcastle  or  Franklin  coal.  Since 
the  continued  mining  of  the  coal  is  absolutely  essential 
to  any  plans  for  the  increase  of  the  net  earnings  of 
the  whole  system  for  the  future,  and  since  the  output 
of  the  mines  furnishes  transportation  profits  to 
the  Columbia  and  Puget  Sound  Railroad,  and  partly 
to  the  Pacific  Coast  Steamship  Company,  it  is  im¬ 
portant  that  space  be  given  to  a  consideration  of  the 
general  coal  situation  in  San  Francisco.  Outside  of  a  few 
lignite  mines  nearby  either  opened  or  proposed  to  be 
opened,  there  is  no  coal  in  California,  the  City  of  San 
Francisco  depending  on  other  countries  and  other  States 
for  its  supply.  Roughly  we  may  say  that  the  city  con¬ 
sumes  1,500,000  tons  of  all  kinds  of  coal  per  year;  one- 
third  of  this  comes  from  British  Columbia,  and  about  one- 
third  more  from  mines  in  the  State  of  Washington,  the 
other  third  being  received  from  Australia  and  Scotland 
and  Wales,  principally.  The  coals  from  Wales  are  at 
present  taking  the  lead  in  the  San  Francisco  market,  these 
and  similar  coals  being  used  principally  for  steam-producing 
purposes.  There  are  few  factories  in  San  Francisco,  but 
considerable  quantities  of  coal  are  required  by  the  United 
States  Navy,  the  electric  and  cable  railroads  and  other  con¬ 
sumers  of  coal  for  power.  It  is  estimated  that  of  the 
total  of  1,500,000  annually  received  at  San  Francisco  about 
600,000  tons  are  used  for  domestic  purposes,  of  which 
500,000  tons,  by  far  the  greater  part,  come  from  British 
Columbia,  principally  from  the  Island  of  Vancouver. 
These  British  Columbia  coals  are  now  selling  at  wholesale, 
“ clean,”  at  $8  per  ton;  Newcastle  coal,  ‘‘clean,”  selling 
at  $5  per  ton  wholesale.  In  spite  of  this  large  differ¬ 
ence,  the  British  Columbia  coals  dominate  the  domestic 
market;  as  the  people  grow  more  fastidious,  they  are  the 


more  inclined  to  use  the  better  class  of  coal,  even  though 
it  may  cost  them  $3  a  ton  more.  Nevertheless  Seattle 
coal  is  of  long  established  reputation  and  can  be  sold,  I 
am  convinced,  in  reasonable  quantities  when  the  mines 
are  ready  to  furnish  a  steady  supply  at  a  cost  a  little 
lower  than  at  present  and  of  a  reasonably  good  quality. 
A  more  severe  competition  with  Seattle  coal  (that  is  New¬ 
castle  coal)  in  San  Francisco  comes  from  other  lignite 
coals  which  are  fiercely  disputing  the  limited  market  for 
that  kind  of  fuel.  One  of  these  rivals  is  lignitic  coal 
mined  by  the  Seattle  Coal  and  Iron  Company,  called  Gil¬ 
man  or  Bryant  coal.  Another  is  the  Coos  Bay  coal,  which  is 
mined,  brought  to  San  Francisco  and  pressed  upon  domestic 
consumers  by  Messrs.  Goodall,  Perkins  &  Company. 
Claus  Spreckels  has  recently  opened  a  lignite  mine  on  the 
coast  at  the  same  point,  Coos  Bay,  and  has  lately  secured 
a  wharf  and  land  in  San  Francisco  for  the  further  devel¬ 
opment  of  his  business.  Although  these  coals  can  be 
transported  to  San  Francisco  at  less  cost  than  Newcastle 
coal,  yet  the  better  quality  of  the  latter  gives  it  an  even 
standing  in  the  market.  Nevertheless  the  Oregon  Im¬ 
provement  Company  should  spare  no  pains  to  cheapen  the 
cost  of  mining  and  of  transportation  in  order  to  regain 
and  hold  the  domestic  market  for  lignitic  coal  in  San 
Francisco. 

The  Oregon  Improvement  Company  has  an  office  for  the 
sale  of  coal  in  San  Francisco;  also  owns  a  valuable  piece 
of  land  near  the  wharves,  part  of  which  is  rented  to  a 
lumber  firm,  the  larger  part  having  a  coal-hoisting  and 
storing  plant.  The  Company  also  has  the  privilege  of 
renting  some  dock  space,  which  it  uses  to  load  and  unload 
vessels.  It  should  be  explained  that  the  State  of  Cali¬ 
fornia  owns  all  the  wharves  in  the  City  of  San  Francisco, 
a  Board  of  Commissioners  deciding  which  companies  shall 
have  the  privilege  of  using  certain  docks  at  a  specified 
rental.  It  is  under  this  plan  that  the  Oregon  Improve¬ 
ment  Company  controls  its  dock,  and  the  Pacific  Coast 
Steamship  Company  its  docks.  For  the  purpose  of  ex¬ 
plaining  the  situation  of  the  Oregon  Improvement  Com- 


pany  in  San  Francisco,  a  table  is  given  below  showing 
the  total  number  of  sales  by  the  Company  for  five  years, 
the  sales  of  Franklin  coal,  small  in  amount,  being  omitted: 


Seattle  coal 
Foreign. . . 


Seattle. 

Foreign 


1891. 


1892. 


Tons  Sold.  Gross  Profit.  Tons  Sold.  Gross  Profit. 
83,391  $31,133  66,224  $32,818 

147,126  $33,002  154,396  $65,131 


1893. 


1894. 


Tons  Sold.  Gross  Profit. 
44,868  $12,440 

164,492  $57,986 


Tons  Sold.  Gross  Profit. 
44,873  $34,225 

172,549  $38,761 


1895. 


Tons  Sold.  Gross  Profit. 


Seattle . .  23,216  $9,514 

Foreign .  202,501  $90,244 


It  will  be  noticed  that,  owing  to  the  disasters  at  the 
mine  in  1895,  the  sales  of  the  Seattle  or  Newcastle  coal 
were  but  a  third  or  a  fourth  of  the  tons  sold  in  1891  and 
1892.  Under  this  shortage  of  supply  from  their  own 
mines,  the  Oregon  Improvement  Company,  it  will  be 
noticed,  sold  an  unusual  number  of  tons  of  foreign  coal, 
and  realized  for  the  Company  last  year  the  good  profit  of 
$90,000.  Circumstances  seem  thus  to  have  forced  upon 
the  company  the  necessity  of  selling  the  foreign  coal,  if 
the  Oregon  Improvement  Company  was  to  continue  in 
business  in  San  Francisco.  The  profit  on  foreign  coal  in 
1895  justifies  the  reputation  which  the  manager  bears  in 
San  Francisco  of  being  the  best  coal  merchant  in  thexuty. 
Nevertheless,  it  is  believed  that  the  future  policy  of  the 
Company  should  be  different  from  that  lately  pursued 
under  force  of  circumstances.  A  glance  at  the  table 
above  will  show  that  in  some  years  almost  as  much 
profit  was  made  from  the  small  sales  of  the  Seattle  coal  as 
from  the  larger  sales  of  foreign  coal,  and  it  is  not  open 
to  doubt,  if  a  large  quantity,  say  100,000  or  150,000  tons, 
of  Newcastle  coal  could  be  mined  and  transported  cheaply 


28 


to  San  Francisco  and  there  sold  at  anything  like  the  profits 
ruling  in  previous  years,  that  the  Oregon  Improvement 
Company  would  make  more  actual  money  at  its  San  Fran¬ 
cisco  office  than  it  does  now,  while  at  the  same  time, 
affording  a  profit  to  the  other  departments  of  the  Com¬ 
pany.  In  looking  at  these  figures,  it  should  be  remembered 
that  by  the  system  of  accounting  adopted,  the  mines  are 
only  credited  with  their  expenses,  thus  putting  the  whole 
profit  into  the  San  Francisco  office. 

There  are  certain  coals  which  may  be  described  as  non¬ 
competitive,  which  it  is  advisable  should  continue  to  be 
sold  by  the  San  Francisco  office,  such  coals  as  the  cannel, 
anthracite,  Scotch,  splint,  blacksmith  and  other  fancy 
coals.  The  selling  prices  of  these  coals  are  fixed  so  as  to 
yield  a  gross  profit  per  ton  varying  from  50  cents  to  $1.50. 
It  is  also  believed  by  the  San  Francisco  office  that  it  is  good 
policy  to  keep  on  friendly  terms  with  the  British  Columbia 
operators  and  to  sell  their  coal  when  called  for  by  cus¬ 
tomers  of  the  Company.  But  by  far  the  largest  part  of 
the  foreign  coal  sold  by  the  Oregon  Improvement  Com¬ 
pany  consists  of  Welsh  and  Australian  coal,  mostly  used 
for  steam-producing  purposes.  It  is  customary  to  contract 
to  deliver  a  certain  number  of  tons  of  these  latter  coals 
during  the  year  at  a  certain  price.  In  estimating  on  the 
price  at  which  such  contract  should  be  made,  the  prices 
of  coal  in  Swansea  and  Australia  being  known,  a  careful 
estimate  is  made  of  the  prospects  of  the  wheat  crop  on 
the  Pacific  Coast,  for  the  more  wheat  the  more  vessels 
may  be  expected  to  come  to  port  for  it.  These  vessels  will 
bring  the  coal  into  San  Francisco  for  very  little,  as  it 
obviates  the  necessity  of  carrying  ballast.  The  rates  which 
these  vessels  may  be  expected  to  charge  on  coal  are  thus 
in  inverse  proportion  to  the  prospects  of  the  wheat  crop. 
When  this  calculation  is  carefully  made  a  gross  profit  of 
about  twenty-five  cents  per  ton  is  added,  the  competition 
in  San  Francisco  limiting  the  gross  profit  per  ton  which 
can  thus  be  made. 

It  is  my  belief  that  the  value  to  the  Oregon  Improve¬ 
ment  Company  of  this  foreign  trade  has  been  somewhat 


29 


overrated,  in  spite  of  the  success  which  is  apparent  from 
the  table  above.  The  following  theoretical  calculation  has 
an  interest  in  this  connection;  the  figures  being  all  taken 
from  the  accounts  for  the  year  1895: 

Value  of  all  coal  on  hand  in  stock  at  San  Fran¬ 


cisco  and  Oakland  at  cost,  Nov.  30th -  $71,147 

All  coal  bills  receivable  Nov.  30th _  289,350 

Value  of  wharf  and  plant  used  by  Company.  400,000 
Live  stock  and  vehicles . . - .  6,915 


$767,412 


Annual  interest  on  this  amount  at  5%  - .  $38,370 

Excess  of  expense  over  wharf  receipts,  for 

year . . . . .  11,338 

Bad  debts,  1895.... . .  1,035 


$50,743 


Number  of  tons  sold  at  San  Francisco,  all 

kinds,  in  1895,  including  Franklin  coal.  237,030  tons 
Being  a  cost  per  ton  of.- . . . .  210 

This  calculation  would  leave  to  the  Oregon  Improve¬ 
ment  Company  a  real  profit  of  but  4  cents  per  ton  on  such 
foreign  coal  as  was  sold  on  a  margin  of  the  gross  profit 
of  25  cents  per  ton,  after  charging  expenses  of  all  kinds,  in¬ 
cluding  interest  on  the  capital  invested  in  the  business. 
It  should  also  be  added  that  the  business  of  dealing  in 
competitive  foreign  coal  is  somewhat  speculative  in  char¬ 
acter,  although  the  manager’s  ability  has  been  such  that 
a  profit  has  been  obtained  each  year.  Nevertheless  it  par¬ 
takes  of  the  nature  of  a  brokerage  business,  and  some  one 
of  marked  ability  in  that  particular  line  must  be  secured 
to  manage  it.  It  does  not  seem  to  have  as  good  a  busi¬ 
ness  foundation  for  the  investment  of  money  of  a  corpora¬ 
tion  as  the  other  departments  of  the  Company.  As 


30 


stated  before,  these  remarks  are  not  made  in  criticism  of 
the  San  Francisco  office,  but  rather  as  showing  how  the 
net  earnings  of  the  future  can  be  increased  by  a  better 
working  together  of  all  the  departments  of  the  Company. 
The  coal  office  in  San  Francisco  and  the  mining  office  in 
Seattle  have  been  independent  of  each  other,  each  report¬ 
ing  to  the  President  in  New  York  City. 

The  Pacific  Coast  Railway  Company. 

This  narrow-gauge  railroad  was  built  as  a  feeder  for  the 
Pacific  Coast  Steamship  Company,  with  which  it  connects 
at  Pt.  Harford.  The  valleys  through  which  this  railroad 
runs  are  very  fertile  and  capable  of  yielding  large  crops 
when  the  rainfall  is  normal.  For  the  past  two  years,  how¬ 
ever,  there  has  been  a  shortage  in  the  rainfall  and  a  corre¬ 
sponding  decrease  in  the  yield.  Nevertheless,  the  net 
earnings  of  the  railroad  have  averaged  over  $20,000  per 
year,  in  addition  to  the  earnings  of  the  Steamship  Com¬ 
pany  from  business  interchanged  with  it.  From  Pt.  Har¬ 
ford  on  the  ocean,  the  road  runs  eastward  for  about  ten 
miles  to  San  Luis  Obispo,  the  principal  town  of  that  sec¬ 
tion  of  the  country.  In  connection  with  a  land  com¬ 
pany,  the  Railroad  Company  built  here  a  good  hotel 
which  does  not  pay  more  than  running  expenses.  The 
coast  line  of  the  Southern  Pacific  Company,  running 
southwards  from  San  Francisco  through  the  Santa  Clara 
Valley,  was  finally  carried  over  the  intervening  moun¬ 
tains,  at  a  large  expense,  into  the  town  of  San  Luis  Obispo; 
thence  the  road  was  extended  along  the  coast  until  it 
is  now  within  sixty  miles  of  a  connection  with  the 
Southern  Pacific  line  from  Santa  Barbara  to  Los 
Angeles.  The  best  information  I  could  obtain  on  the 
Pacific  Coast  was  that  these  sixty  miles  were  not 
likely  to  be  built  for  some  time  to  come.  When,  how¬ 
ever,  this  gap  is  filled,  the  Southern  Pacific  will  have  a 
line  from  San  Francisco  to  Los  Angeles,  rather  shorter 
than  its  old  line  through  the  San  Joaquin  Valley  and  one 


31 


forming  a  far  pleasanter  passenger  journey.  It  looks  on 
the  map  as  though  this  line  had  paralleled  the  Pacific 
Coast  Railway  for  its  whole  length,  hut  a  trip  over  the 
road  shows  that  there  are  fair  sized  hills  between  the  two 
railroads,  which  should  give  the  Narrow  Gauge  road  the 
advantage  of  its  own  valleys.  Furthermore,  to  reduce 
the  rates  very  materially  would  compel  the  Southern 
Pacific  to  readjust  all  their  local  tariffs  in  California;  it 
is  not  probable,  therefore,  that  this  will  be  done.  The 
Narrow  Gauge  road  will  undoubtedly  lose  a  certain  amount 
of  business  to  the  Southern  Pacific  Company,  but  its  case 
is  not  nearly  as  bad  as  I  supposed  before  going  over  the 
ground.  The  road  ought  to  make  traffic  agreements  with 
the  Southern  Pacific  for  such  passengers  and  freight  as  it 
cannot  easily  deliver  to  the  steamships.  To  favor  the 
land  company  already  mentioned,  the  terminus  of  the 
road  was  fixed  at  Los  Olivos.  This  was  a  mistake;  the 
road  should  be  extended  about  five  miles  further  to 
the  Santa  Inez  Valley,  a  fertile  valley,  whose  traffic 
is  worth  holding,  and  which  can  now  be  reached  by  the 
Southern  Pacific  by  a  few  miles  of  teaming  or  by  a  branch 
road  in  the  future.  The  roadbed  and  equipment  are  fairly 
good,  the  only  expenditure  at  present  needed  being  for 
the  replacing  of  a  few  miles  of  old  iron  rails,  now  worn 
out  and  getting  dangerous,  by  steel  rails,  which  the  Com¬ 
pany  already  owns.  Messrs.  Goodall,  Perkins  &  Co.  are 
paid  two  per  cent,  upon  the  gross  earnings  of  the  Pacific 
Coast  Railway,  as  a  part  of  the  steamship  system. 

Valuations. 

In  order  to  give  a  clearer  view  of  the  situation,  the 
accompanying  table  has  been  prepared  which  gives  in  one 
column  the  names  of  the  different  companies,  next  the 
book  value  of  each  as  carried  on  the  accounts  of  the 
Oregon  Improvement  Company,  then  a  column  giving  the 
estimated  value  of  such  assets  of  each  of  these  companies 
as  are  in  active  use,  then  finally  a  column  giving  an  ap- 


32 


praisement  of  those  assets  of  these  companies  which  are 
not  in  active  use,  but  which  have  a  future  or  contingent 
valuation. 

Statement  of  Book  Values  and  Valuations. 


Companies. 

Book  Value. 

Estimated  value 
of  assets  in' 
active  use. 

Appraisement  of 
assets  not  in 
act  i  v  e  use 
having  a 
future  or  con¬ 
tingent  valua¬ 
tion. 

Or.  Imp.  Co . 

$10,628,895 

2,262,590 

1,671,602 

1,230,390 

1,353,504 

1,006,704 

$3,149,058 
1,339,176 
800,000 
200  000 

$395,965 

Pac.  Coast  S.S.  Co . . . 

Pao.  Coast  Ry.  Co . 

Seattle  and  No . 

81,760 

1,646,000 

Pt.  Townsend  So.  (2  lines) _ 

Col.  and  Puget  Sound .  ... 

2,975,000 

$18,153,685 

$8,463,234 

$2,123,725 

Of  the  amount  carried  as  the  book  value  of  the  Oregon 
Improvement  Company — $10,628,895 — it  should  be  noted 
that  the  $5,000,000  stand  in  the  accounts  as  “  Bonds,  5,000, 
at  $1,000  each”;  the  explanation  of  which  is  said  to  be 
that  $5,000,000  of  stock  of  the  Company  was  sold  at  par 
and  an  equal  amount  of  the  Company’s  bonds  given  to 
stockholders  as  a  bonus.  It  will  be  noted  that  the  Seattle 
and  Northern  and  the  Port  Townsend  Southern  lines 
stand  upon  the  books  at  $2,500,000,  for  which  consolidated 
bonds  were  issued  at  a  discount.  These  two  investments 
combined  are  yielding  the  Company  no  income.  Aside  from 
its  value  as  a  carrier  of  coal  for  the  Improvement  Company 
and  for  other  mining  companies,  the  Columbia  and  Puget 
Sound  owns  agricultural  land,  city  lots  in  Seattle  and  tide 
water  rights  which  are  put  down  in  the  table  at  a  valua¬ 
tion  of  $1,646,000.  In  the  majority  of  instances  I  have 
taken  the  assessor’s  valuations  for  these  properties;  the 
same  remark  being  true  of  the  other  two  items  in  the 
column  of  contingent  valuations.  These  properties,  be- 


33 


cause  of  the  business  depression,  cannot  now  be  sold,  but 
it  is  not  impossible  when  business  revives  that  they  may 
become  salable  at  at  least  twice  the  assessed  valuations 
above  recorded. 

The  steamships  belonging  in  part  to  the  Improvement 
Company  and  in  part  to  the  Pacific  Coast  Steamship  Com¬ 
pany,  which  are  now  being  operated  by  the  latter  com¬ 
pany,  were  appraised  by  three  separate  individuals;  in 
the  above  table  the  average  of  these  appraisements  has 
been  taken.  Regarding  the  railroad  properties  the  valua¬ 
tion  has  been  estimated  on  the  basis  of  their  earning 
capacity  for  several  years,  capitalized  at  five  per  cent. 
While  there  may  be  some  slight  difference  of  opinion  as 
to  the  values  which  may  be  put  upon  certain  of  the  items 
in  this  table,  the  importance  of  the  statement  consists  in 
showing  approximately  the  financial  condition  of  the 
properties  without  cross-bookkeeping,  and  approximately 
also  the  impairment  of  capital. 

Capital  Account. 

The  capital  account  of  the  Company  on  November  30, 


1895,  was  as  follows: 

First  mortgage  6%  bonds  issued.  . . . $4,071,000 

Consol.  “  5%  “  “  6,757,000 

Preferred  stock  “  322,000 

Common  “  “  7,000,000 

Total . $18,150,000 

Upon  this  capitalization  the  annual  fixed  charges  were  as 
follows: 

Annual  interest  on  1st  mortgage  bonds .  $244,260 

Payments  from  income  to  sinking  fund _  103,760 

Total  for  1st  mortgage - $348,020 

Annual  interest  on  Consol,  bonds  -  .  337,850 

Total  fixed  charges  on  bonds  issued _  $685,870 


34 


Income  Account. 

The  following  is  the  approximate  statement  of  earnings 
for  the  year  1895: 

Net  earnings  as  reported  after  deducting 


operating  expenses  and  taxes _  $390,000 

Add  proportion  of  cost  of  opening  new 
shafts  at  mines,  which  cost  should  be 
distributed  over  five  years . .  50,000 

Income  from  operation . . .  $440,000 


From  these  earnings  from  operation  there  should  have 
been  deducted  the  sum  of  $150,000  for  depreciation  and 
improvement  of  steamships.  The  amount  which  should 
have  been  thus  deducted  has  been  arrived  at  by  a  careful 
computation  of  the  average  amount  necessary  for  renew¬ 
als  and  extraordinary  repairs  to  boilers  and  machinery  of 
the  steamships.  This  depreciation  has  never  been  taken 
into  account,  and  this  failure  to  set  aside  any  money  from 
income  for  this  purpose  is  the  reason  why  it  is  now  neces¬ 
sary  to  raise  money  for  these  purposes  in  any  reorganiza¬ 
tion. 

Cash  Requirements. 

The  following  is  an  estimate  of  the  cash  needed  by  the 
Company  for  immediate  requirements: 

Rebuilding  steamship  Queen _ _ _  $200,000 

New  steamship,  equipment  and  amount  neces¬ 
sary  for  the  rehabilitation  of  the  steam¬ 
ship  and  other  business  of  the  Company, 
details  of  which  I  prefer  to  explain  per¬ 


sonally  to  your  Committee _  700,000 

Standard  gauging,  equipping  and  extending 

the  Columbia  and  Puget  Sound  R.  R.  250,000 

Due  for  tide  lands  under  contract  with  the 

State . . 110,000 

Developing  coal  lands  and  purchasing  addi¬ 
tional  coal  property . .  115,000 

New  warehouse . 35,000 

Receivership  expenses  as  estimated  by  Re¬ 
ceiver . : _  90,000 


$1,500,000 


35 


Contingent  Requirements. 

There  should  be  appropriated  from  the  net  earnings  a 
sufficient  sum  annually  for  depreciation,  extraordinary 
repairs  to  steamships  and  for  minor  improvements,  such 
as  electric  lights  and  winches.  If  this  sum  is  not  set 
aside  annually  from  net  earnings  it  will  have  to  be  pro¬ 
vided  for  from  other  sources. 

*%■&*** 

It  would  be  advisable  also  for  the  Company  to  provide 
the  sum  of  $500,000  as  a  separate  fund,  so  that  the  Com¬ 
pany  may  conduct  its  own  marine  and  fire  insurance. 
The  saving  in  the  annual  cost  of  this  insurance  by  means 
of  such  a  fund  would  be  important,  besides  the  greater 
security  over  previous  methods  of  insurance. 

General  Business  Conditions. 

No  good  estimate  of  the  future  of  the  Oregon  Improve* 
ment  Company  can  be  made  without  taking  into  account 
the  general  business  conditions  ruling  on  the  Pacific  Coast. 
Until  about  three  years  ago  the  part  of  the  United  States 
west  of  the  Rocky  Mountains  enjoyed  a  high  degree  of 
prosperity,  partly  because  of  natural  conditions  and  partly 
through  booms.  While  these  good  times  were  present 
the  business  men  there  did  not  need  to  make  a  close  study 
of  their  circumstances.  Fancy  prices  were  obtained  for 
everything,  and  no  matter  what  the  expenses  may  have 
been,  there  was  always  a  large  margin  of  profit.  Aside 
from  the  collapse  of  the  booms,  which  would  probably 
have  come  in  any  event,  the  Pacific  Coast  has  felt 
the  business  depression  which  began  in  Wall  Street 
and  slowly  spread  throughout  the  country.  Roughly 
speaking,  they  are  now  experiencing  the  dullness  of  busi¬ 
ness  which  was  the  marked  characteristic  of  the  Atlantic 
Coast  a  year  ago.  There  is  very  little  profit  in  the  major¬ 
ity  of  lines  of  business  on  the  Pacific  Coast.  The  citizens 
are  looking  forward  hopefully  to  the  time  when  the 


36 


clouds  will  lift  and  trade  become  again  active  and  prosper¬ 
ous.  Some  of  the  more  enthusiastic  think  that  this  day  of 
prosperity  is  not  far  away,  and  they  are  rather  inclined  to 
doubt  the  judgment  of  an  Eastern  man  who  does  not 
strictly  agree  with  them,  and  they  add,  with  some  meas¬ 
ure  of  justice,  that  the  Eastern  man  is  hardly  in  a  condi¬ 
tion  to  appreciate  how  easily  and  quickly  values  advance 
on  the  Pacific  Coast  when  once  the  tide  turns.  Neverthe¬ 
less,  there  are  some  considerations  which  lead  one  to  the 
opinion  that  recovery  upon  the  Pacific  Slope  will  be 
slower  than  its  merchants  believe.  The  reason  for  this 
opinion  lies  principally  in  the  fact  that  the  people  of  the 
Pacific  Coast  do  not  seem  to  be  able  or  willing  to  approach 
the  problem  in  the  right  way.  They  are  all  expecting  the 
wished-for  prosperity  to  come  through  an  advance  in 
'  prices.  It  would  be  better  if  at  least  a  part  of  their  energy 
were  directed  to  cheapening  the  cost  of  production. 

This  remark  is  applicable  to  a  greater  or  less  extent  to 
almost  every  industry  upon  the  Pacific  Coast.  It  seems  to 
me  to  be  a  more  reasonable  theory  to  hold  that  the  recov¬ 
ery  in  business  will  come  partly  through  an  advance  in 
prices,  no  doubt,  but  largely  through  a  reduction  in  the 
cost  of  production.  One  of  the  important  elements  in  this 
matter  of  cost  is  the  wages  paid  for  all  forms  of  labor. 
Wages  on  the  Pacific  Coast  are  about  twenty-five  per 
cent,  higher  than  on  the  Atlantic  seaboard,  and  not  only 
so,  but,  as  before  remarked,  the  trade  unions,  which  are 
very  strong,  limit  the  amount  of  work  to  be  done  and 
often  increase  the  number  of  men  required  to  perform  a 
certain  work.  California  particularly  is  a  cheap  country 
to  live  in,  and  there  is  no  economic  reason  why  wages 
should  be  higher  there  than  upon  the  Atlantic  Coast 
except  upon  the  theory  that  the  laboring  men  should 
share  in  the  large  margin  of  profits  heretofore  ruling.  It 
may  be  said  that  the  employers  of  labor  are,  in  their  way, 
making  the  same  mistake  as  the  laboring  men.  Many  of 
the  old  merchants  on  the  Pacific  Coast  are  unwilling  to 
sell  goods  except  on  the  old-time  percentage  of  profit.  It 


37 


seems  to  me,  therefore,  that  considerable  time  will  elapse 
before  that  portion  of  general  prosperity  which  arises  from 
the  study  of  cheap  production  and  a  small  margin  of  profit 
will  come  to  the  States  of  the  Pacific  seaboard.-  No  trav¬ 
eler,  however,  can  help  being  impressed  with  the  possibili¬ 
ties  for  commercial,  mining  and  agricultural  success  in 
that  section  of  our  country  when  once  this  lesson  is 
learned. 

These  remarks  apply  as  well  to  the  properties  of  the 
Oregon  Improvement  Company  as  to  the  other  business 
interests  of  that  Coast.  There  has  not  been  the  occasion 
for  the  careful  study  of  details  such  as  the  managers  of 
eastern  corporations  have  been  compelled  to  undertake. 
It  is  my  judgment,  therefore,  that  one  of  the  needs  of 
the  times  is  that  the  management  of  the  Oregon  Improve¬ 
ment  Company  in  all  its  departments  should  be  so 
organized  as  to  undertake  this  more  careful  study  of  all 
details  of  the  business.  Without  this,  any  reorganization 
will,  I  am  persuaded,  fail  of  its  real  object. 

System  of  Management. 

To  arrange  for  the  carrying  out  of  this  better  study  of  all 
the  different  departments,  it  is  essential  that  the  system 
of  management  should  be  so  organized  as  to  render  such 
a  study  possible  and  effective.  The  method  in  use  up  to 
the  date  of  the  Receivership  is  not  such  as  to  meet  the 
requirements  of  the  present  situation.  The  mining  de¬ 
partment  and  the  railroad  department  in  Washington, 
and  the  selling  department  in  San  Francisco,  have  been 
independent  of  each  other,  each  looking  for  instruc¬ 
tions  from  a  President  three  thousand  miles  away. 
So,  too,  the  Pacific  Coast  Steamship  Company, 
under  the  contract  with  Goodall,  Perkins  &  Co., 
have  been  subject  to  the  Oregon  Improvement  Company 
only  as  to  general  supervision,  and  this,  again,  has  been 
attempted  to  be  supplied  from  New  York  City.  One  re¬ 
sult  of  this  system  has  been  that  the  Company  has  four 
general,  or  quasi -general,  offices  (five,  if  we  include  a 


38 


small  office  in  Portland),  involving  an  expenditure  of 
about  $150,000  per  year.  The  minor  employees  are  not  paid 
too  much,  but,  on  the  contrary,  in  some  instances  not 
enough,  the  cost  coming  rather  from  a  duplication  of 
work  and  of  positions.  At  present  there  is  no  one  office 
where  all  information  can  be  obtained.  A  concentra¬ 
tion  of  management  such  as  is  herein  proposed  would 
save  a  good  part  of  this  sum.  But  the  benefits  of  such  a 
saving  in  general  office  expenses  would  be  slight  com¬ 
pared  with  the  effect  upon  the  Company’s  earnings  as  a 
whole.  There  should  be  a  President  (or  Vice-President) 
who  should  also  be  the  general  manager,  and  whose  office 
should  be  at  some  central  point  upon  the  Pacific  Coast, 
preferably  San  Francisco.  Such  an  officer  should  be  held 
responsible  for  the  workings  of  all  the  departments  and 
should  be  controlled  only  by  the  Executive  Committee  in 
New  York.  There  should  be  in  New  York  City  a  Presi¬ 
dent  (or  Vice-President)  holding  a  nominal  position,  and  a 
Treasurer,  who  should  be  the  active  man  and  authorized 
by  the  Executive  Committee  to  require  all  necessary  infor¬ 
mation  from  the  main  office,  so  that  the  Eastern  bond  and 
stockholders  may  be  thoroughly  informed  about  the 
workings  of  their  property  and  so  that  the  General  Man¬ 
ager  on  the  Pacific  Coast  may  be  held  responsible  as  to  his 
policy,  though  not  as  to  details,  to  the  New  York  office  and 
Board  of  Directors.  All  the  subordinate  companies  should 
be  leased  to  the  Oregon  Improvement  Company  for  their 
net  earnings,  saving  bookkeeping  and  permitting  concen¬ 
tration.  The  various  departments  on  the  Pacific  seaboard 
should  be  made  strictly  subordinate,  both  as  to  positions 
and  salaries,  to  the  General  Manager.  This  officer  should 
be  selected  with  great  care,  for  I  know  of  no  corporation 
whose  future  is  more  dependent  upon  the  personality  of  its 
chief  officer  than  the  Oregon  Improvement  Company. 
****** 


39 


Probabilities. 

Owing  to  strong  competition  with  the  Pacific  Coast 
Steamship  Company  on  nearly  all  its  routes  and  because 
of  the  general  dullness  of  business,  it  is  probable  that  the 
net  earnings  of  the  year  1896  under  the  above  estimate 
will  not  exceed,  if  they  do  not  fall  beloTv,  the  earn¬ 
ings  already  given  for  1895.  With  the  cash  require¬ 
ments  of  the  Company  satisfied,  so  that  the  various 
departments  shall  be  in  a  better  position  to  conduct  their 
business  economically,  and  with  the  more  concentrated 
management  already  advocated,  by  which  the  various 
properties  shall  be  operated  so  as  to  support  each  other 
effectively,  there  is  good  reason  to  expect  an  increase  in 
the  earning  capacity  of  the  Company  within  three  or  four 
years,  an  increase  which  wTill  no  doubt  be  accelerated 
when  general  business  upon  the  Pacific  Coast  becomes 
more  active  and  prosperous.  If  the  policy  above  outlined 
is  systematically  and  vigorously  carried  out,  there  is  rea¬ 
son  to  expect  that  the  Company  should  then  be  able  to 
earn,  say,  $500,000  per  year,  applicable  to  fixed  charges 
and  dividends. 

I  am,  yours  very  truly, 

(Signed)  THOMAS  L.  GREENE. 


[1083N] 


4 


